In Which Direction To Go… Strategy Choice

Strategy choice is a complex job for various reasons. Past data, current data and forecasted data should be examined carefully. Quantitative tools and analytical models must be employed keeping the firm’s strengths, industry attractiveness etc. in the background. Every attempt should be made to examine issues of importance from various angles. Factors such as internal political compulsions government policies, competitive reactions complicate the process further. The process often, produces multifarious alternatives. Identifying a clearly superior strategy, under the circumstances proves to be a tough job. The decision makers are, often compelled to use discretion, judgement and experience while striking a happy balance between competing , equally appealing strategic choices. Each issue needs to be tackled with a lot of care and caution.

Past strategy strongly influences current strategy choice. Current strategists, who have built past strategies through painstaking efforts, do not completely break away from familiar routes. Since they have invested lot of time resources, and energies in developing these strategies, they tend to make a choice that closely parallels or involves incremental alterations to the current strategy. Embarking on a totally new ground would render existing resources and personnel somewhat redundant. If the old strategy proves to be successful one, it becomes emotionally very difficult to embrace a totally new path since it may upset organizational momentum. People are used to do things this way. This kind of mental rigidity comes in the way of moving away from established, familiar routes. Strategists find it very difficult to come out of the mental trap created by themselves even when past strategies fail to deliver the goods. It is therefore, not totally surprising to find changes at the top level whenever the firm fails to retain its market leadership. Replacing top executives often lessens the influences of unsuccessful past strategy on future choice. Strategic change is less likely if new executives are promoted from within and it is least likely if the existing management group remains in power.

Managerial attitudes towards risk is another factor that has a significant bearing on strategic choice. Risk averse managers prefer to go by past trends and strategies. Where attitudes favour risk, the range of the strategic choice expands. Managers tend to assume aggressive postures and are open to high risk strategies. Likewise managers operating in highly volatile industries absorb and tolerate greater amount of risk than do their counterparts operating in stable industries. Industry evolution is another important determinant of managerial propensity towards risk. A firm, in the early stages of the product market cycle likewise, has to bear with greater amounts of risk and uncertainty than a firm in the later stages of that cycle.

When environmental conditions change, managers are forced to assume aggressive postures at least temporarily to ward off competitive threats. When Amul started playing the role of market leader in the Pizza industry by pricing its product at Rs 20 other players were also forced to reduce the price and absorb the shocks inflicted by the competitor. One thing to be observed here is that risk prone decision makers often limit the amount of information they consider and tend to take decisions quickly.

Multinational companies in India acknowledge that their strategic alternatives are often dictated by national, industrial and economic policies framed by government. In short, the nature of a firm’s decision making process is likely to change in tune with its dependence on certain external factors.

Internal Political Considerations: Internal political forces influences strategic choice on many occasions. Dominant coalitions within a company exert lot of pressure when a particular choice affects their functioning in a significant way. Thus, public sector bank unions have opposed the introduction of computerization process in early 1990s quite vehemently. In most public sector units bureaucrats, administrative staff and politicians often form opportunistic alliances with a view to stop the government in power from divesting unviable units or departments. The alarming situation in State Electricity Boards, Transport Corporations should have forced any government to stop funding or subsidizing their operations – but for the strong protests from noisy unions. Coalitions do work for their own self interests for fairly obvious reasons. A strong CEO can always cleanse the system (as HLL did in the case of Modern Food Industries Ltd., Tata Consultancy Services (TCS) did in the case of CMC at an amazing speed) and turn the tables on coalitions howsoever well connected, politically influential they might be. Sometimes, lower level managers too may limit the strategic options considered by top management. Thus, Power, in this study of strategic decisions in a large corporation found that lower level executives suggested strategic choices that were likely to be accepted and withheld suggestions which were not likely to be approved.